Section 6031(a) of the Internal Revenue Code (Code) requires every partnership to file a return for each taxable year stating specifically the items of its gross income and the deductions allowable by subtitle A of the Code and such other information for the purposes of carrying out the provisions of subtitle A as the Secretary may by forms and regulations prescribe, including information about the partners in the partnership. Section 1.6031(a)-1(a)(2) requires that the partnership return contain the information required by the prescribed form and the accompanying instructions. For a partnership, the return required by section 6031(a) is Form 1065, U.S. Return of Partnership Income, which includes Schedules K-1 (Form 1065). Schedule K-1 (Form 1065) provides the name of the partner and the partner’s distributive share of taxable income and other information related to the partner regarding the partnership.

Section 6031(b) requires that a partnership required to file a return under section 6031(a) furnish to each partner a copy of the Schedule K-1 (Form 1065) that includes such information as may be required to be shown by regulations. In general, section 6031(b) also prohibits partnerships from amending the information required to be furnished to its partners after the due date of the return, unless the partnership has made an election under section 6221(b) for the taxable year. A partnership subject to this prohibition under section 6031(b) that has not timely filed a request to extend the time to file its Form 1065 may not be eligible for the relief provided by this notice unless the partnership fulfills the requirements of Rev. Proc. 2019-32, 2019-33 I.R.B. 659, which allows a Form 1065 to be filed by an extended deadline. A partnership seeking relief under Rev. Proc. 2019-32 must furnish Schedules K-1 consistent with the superseding Form 1065.

Section 6222(a) generally requires a partner in a partnership to treat a partnership-related item, as defined in section 6241(2)(B) and the corresponding regulations, consistently on the partner’s return with the treatment of such item by the partnership on its return.

Section 6222(c) provides that the consistency requirement of section 6222(a) does not apply to a partnership-related item if the partner files with the Secretary a statement identifying the inconsistency. The statement required by section 6222(c) is Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), which may be filed on an original, amended, or superseding return.

Sections 6072(b) and 6031(b) provide that the deadline for filing Form 1065 and furnishing Schedules K-1 (Form 1065) to partners is generally the fifteenth day of the third month after the end of the partnership’s taxable year. For a calendar-year partnership, this deadline generally is March 15.

Section 6081(a) permits the Secretary of the Treasury Department to grant a reasonable extension of time, generally no more than six months, for filing any return, statement, or other required document. Generally, to receive an extension of time to file a return, §1.6081-2(b) provides that a partnership must submit an application before the date prescribed for filing Form 1065 (taking into account certain extensions). For a calendar-year partnership that requests a six-month extension, the extended deadline for its 2018 taxable year is September 16, 2019.

Section 6037(a) requires every S corporation to file a return for each taxable year stating specifically the items of its gross income and the deductions allowable by subtitle A of the Code, the names and addresses of all persons owning stock in the corporation at any time during the taxable year, the number of shares of stock owned by each shareholder at all times during the taxable year, the amount of money and other property distributed by the corporation during the taxable year to each shareholder, the date of each distribution, each shareholder’s pro rata share of each item of the corporation for the taxable year, and such other information for the purpose of carrying out the provisions of subchapter S of chapter 1 of the Code, as the Secretary may by forms and regulations prescribe. Section 1.6037-1(a) provides in part that the return shall set forth the items of gross income and the deductions allowable in computing taxable income as required by the return form or in the instructions issued with respect thereto. For an S corporation, the return required by section 6037(a) is Form 1120S, U.S. Income Tax Return for an S Corporation, which includes Schedule K-1 (Form 1120S). Schedule K-1 (Form 1120S) provides the name of the shareholder and the shareholder’s pro rata share of taxable income and other information related to the shareholder regarding the S corporation.

Section 6037(b) requires that an S corporation required to file a return under section 6037(a) furnish a copy of the Schedule K-1 (Form 1120S) to each shareholder that includes such information as may be required to be shown by regulations.

Section 6037(c)(1) generally requires a shareholder of an S corporation to treat a subchapter S item, as defined in section 6037(c)(4), consistently on the shareholder’s return with the treatment of such item by the S corporation on its return.

Section 6037(c)(2) provides that the consistency requirement of section 6037(c)(1) does not apply to a subchapter S item if the shareholder files with the Secretary a statement identifying the inconsistency. The statement required by section 6037(c)(2) is Form 8082, which may be filed on an original, amended, or superseding return.

Sections 6072(b) and 6037(b) provide that the deadline for filing Form 1120S and furnishing Schedules K-1 (Form 1120S) to shareholders of an S corporation is generally the fifteenth day of the third month after the end of the S corporation’s taxable year. For a calendar-year S corporation, this deadline generally is March 15. As with partnership returns, this deadline generally may be extended upon request for up to six months under section 6081(a). For a calendar-year S corporation that requests a six-month extension, the extended deadline for its 2018 taxable year is September 16, 2019.

Section 6698(a) imposes a penalty if any partnership that is required to file a return under section 6031 fails to file a timely return, or files a return that fails to show the information required under that section, unless the failure is due to reasonable cause.

Section 6699(a) imposes a penalty if any S corporation required to file a return under section 6037 fails to file a timely return, or files a return that fails to show the information required under that section, unless the failure is due to reasonable cause.

Section 6722(a) imposes penalties for failing to include all required information or for including incorrect information on a payee statement (as defined in section 6724(d)(2) and the corresponding regulations), such as a Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120S), unless section 6724(a) applies because the failure is due to reasonable cause and was not due to willful neglect.

Section 14201(a) of Pub. L. 115-97 (131 Stat. 2054, 2208), commonly referred to as the Tax Cuts and Jobs Act (TCJA), added section 951A, which applies to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders (as defined in section 951(b)) (U.S. shareholders) in which or with which such taxable years of foreign corporations end.

Section 951A(a) requires a U.S. shareholder of any controlled foreign corporation (as defined in section 957) (CFC) for any taxable year to include in gross income the shareholder’s global intangible low-taxed income (GILTI) inclusion for such taxable year. In general, a U.S. shareholder’s GILTI inclusion amount is determined by reference to the stock of CFCs that the shareholder owns within the meaning of section 958(a). See section 951A(e)(1), cross-referencing section 951(a)(2).

Section 951(b) defines a U.S. shareholder of a foreign corporation as a United States person (U.S. person) that owns (within the meaning of section 958(a)), or is considered as owning by applying the ownership rules of section 958(b), at least 10 percent of the total combined voting power or value of stock of the foreign corporation. Section 957(c) generally defines a U.S. person by reference to section 7701(a)(30), which defines a U.S. person as a citizen or resident of the United States, a domestic partnership, a domestic corporation, and certain estates and trusts. Section 1373(a) provides, in part, that for purposes of subpart F of part III of subchapter N of the Code (sections 951 through 965), an S corporation is treated as a partnership, and the shareholders of such corporation are treated as partners of such partnership.

On October 10, 2018, the Treasury Department and the IRS published in the Federal Register proposed regulations under section 951A (REG-104390-18, 83 FR 51072) (Proposed Regulations). The Proposed Regulations provided a hybrid approach to the treatment of a domestic partnership that is a U.S. shareholder (U.S. shareholder partnership) of a CFC (partnership CFC). Under the hybrid approach, a U.S. shareholder partnership would determine its GILTI inclusion amount, and the partners of the partnership that were not also U.S. shareholders of the partnership CFC would take into account their distributive share of the partnership’s GILTI inclusion amount. See proposed §1.951A-5(b). Partners that were themselves U.S. shareholders of a partnership CFC would not take into account their distributive share of the partnership’s GILTI inclusion amount, and instead would be treated as proportionately owning the stock of the partnership CFC within the meaning of section 958(a) as if the domestic partnership were a foreign partnership. See proposed §1.951A-5(c).

On June 21, 2019, the Treasury Department and the IRS published in the Federal Register final regulations under section 951A (T.D. 9866, 84 FR 29288) (Final Regulations). The Final Regulations did not adopt the hybrid approach with respect to domestic partnerships in the Proposed Regulations. Under the Final Regulations, a domestic partnership (including a U.S. shareholder partnership) does not have a GILTI inclusion amount, and therefore no partner of the partnership has a distributive share of a GILTI inclusion amount. See §1.951A-1(e)(1). Rather, for purposes of determining the GILTI inclusion amount of any partner of a domestic partnership, each partner is treated as proportionately owning the stock of a CFC owned by the partnership within the meaning of section 958(a) in the same manner as if the domestic partnership were a foreign partnership. See id. Because only a U.S. person that is a U.S. shareholder can have a GILTI inclusion amount, a partner that is not a U.S. shareholder of a partnership CFC does not have a GILTI inclusion amount determined by reference to such partnership CFC. In summary, under the Final Regulations, a partner that is not a U.S. shareholder with respect to a partnership CFC has neither a distributive share of a GILTI inclusion amount nor a GILTI inclusion amount that is determined by reference to such partnership CFC.

The Final Regulations apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of U.S. shareholders in which or with which such taxable years of foreign corporations end. See §1.951A-7. Therefore, domestic partnerships and S corporations that file their income tax returns for the 2018 tax year after June 21, 2019, must, absent the relief provided in this notice, file income tax returns consistent with the Final Regulations and furnish Schedules K-1 to their partners and shareholders that are consistent with these income tax returns.

The Treasury Department and the IRS are aware that many domestic partnerships and S corporations furnished Schedules K-1 to their partners and shareholders on or before the date of publication of the Final Regulations on June 21, 2019. Consistent with proposed §1.951A-5, these Schedules K-1 (Proposed Regulation Schedules K-1) may have reported a distributive share of the domestic partnership’s GILTI inclusion amount or a pro rata share of the S corporation’s GILTI inclusion amount. In the absence of relief, to avoid potential penalties under section 6698, 6699, or 6722, these domestic partnerships and S corporations could be required to file returns for the 2018 taxable year consistent with the Final Regulations, and furnish Schedules K-1 consistent with their Form 1065 (Schedule K) or Form 1120S (Schedule K). The issuance of corrected Schedules K-1 consistent with the Final Regulations under these circumstances may result in significant additional costs to these domestic partnerships and S corporations and significant burden to the IRS related to processing amended returns based on corrected Schedules K-1.

After considering the compliance burden of domestic partnerships and S corporations associated with §1.951A-1(e), the Treasury Department and the IRS have decided to provide relief in this notice for certain domestic partnerships and S corporations (described in section 3 of this notice) so that they may apply the rules in the Proposed Regulations for taxable years ending before June 22, 2019. In addition, section 4 of this notice provides that certain penalties that might otherwise apply to domestic partnerships or S corporations that acted consistently with proposed §1.951A-5 prior to June 22, 2019, do not apply.

In order for the rules described in section 3 or section 4 of this notice to apply, a domestic partnership or S corporation must provide notification to each partner of the partnership or shareholder of the S corporation (1) that the Schedule K-1 provided to the partner or shareholder is consistent with proposed §1.951A-5; (2) whether the domestic partnership or S corporation filed a Form 1065 or Form 1120S consistent with proposed §1.951A-5 or the Final Regulations; and (3) that the notification is being provided in accordance with this notice. Such notification must be provided no later than the extended due date of the domestic partnership’s or S corporation’s tax return (September 16, 2019, in the case of a calendar-year filer), and may be provided through any reasonable method, including via mail, e-mail, or posting on a website through which the domestic partnership or S corporation would ordinarily disseminate tax information to its partners or shareholders. In the event a domestic partnership or S corporation has filed its tax return and not filed for an extension of time to file its return, the notice described in this section 5.01 must be provided by the date on which the return would have been due had an extension been properly requested.

The domestic partnership or S corporation must also attach the notification described in the previous paragraph and Form 8992 reflecting computations under proposed §1.951A-5 to any tax return with respect to which the rules described in section 3 or 4 of this notice are being applied if the tax return has not been filed as of the date of publication of this notice.

If a domestic partnership or S corporation furnished a Schedule K-1 based on proposed §1.951A-5, the domestic partnership or S corporation must separately state on Schedules K-1 for subsequent taxable years the partner’s or shareholder’s distributive share or pro rata share of a foreign corporation’s distributions to the domestic partnership or S corporation of earnings and profits that relate to the GILTI inclusion amount of the partnership or S corporation that was reflected on the first mentioned Schedules K-1. This information must be provided for each taxable year of the domestic partnership or S corporation following the taxable year to which the first Schedule K-1 relates. The information could be used by a partner of a domestic partnership or a shareholder of an S corporation that receives a Schedule K-1 separately stating such distributions to calculate its gross income if such partner or shareholder filed inconsistently with the first Schedule K-1 and did not include in gross income its distributive share or pro rata share of the GILTI inclusion amount reported on such Schedule K-1.

This notice extends the temporary nondiscrimination relief for closed defined benefit plans that is provided in Notice 2014-5, 2014-2 I.R.B. 276, by making that relief available for plan years beginning before 2021 if the conditions of Notice 2014-5 are satisfied.

Notice 2014-5 provides temporary nondiscrimination relief for certain “closed” defined benefit pension plans (that is, defined benefit plans that provide ongoing accruals but that have been amended to limit those accruals to some or all of the employees who participated in the plan on a specified date). Specifically, for plan years beginning before 2016, Section III.B of Notice 2014-5 permits a DB/DC plan that includes a closed defined benefit plan (that was closed before December 13, 2013) and that satisfies certain conditions set forth in the notice to demonstrate satisfaction of the nondiscrimination in amount requirement of § 1.401(a)(4)-1(b)(2) on the basis of equivalent benefits even if the DB/DC plan does not meet any of the existing eligibility conditions for testing on that basis under § 1.401(a)(4)-9(b)(2)(v).

Notice 2015-28, 2015-14 I.R.B. 848, Notice 2016-57, 2016-40 I.R.B. 432, Notice 2017-45, 2017-38 I.R.B. 232, and Notice 2018-69, 2018-37 I.R.B. 426, extend the temporary nondiscrimination relief provided in Notice 2014-5 by applying that relief to plan years beginning before 2020 if the conditions of Notice 2014-5 are satisfied. Notice 2015-28 further provides that, during the period for which the extension applies, the remaining provisions of the nondiscrimination regulations under § 401(a)(4) continue to apply.

Proposed regulations relating to nondiscrimination requirements for closed plans were published in the Federal Register on January 29, 2016 (81 FR 4976). The proposed regulations set forth relief for closed plans under §§ 1.401(a)(4)-4, 1.401(a)(4)-8, and 1.401(a)(4)-9 (subject to satisfaction of certain conditions set forth in the regulations), and contain other proposed nondiscrimination rules. The regulations are proposed to apply generally to plan years beginning on or after the date of publication of the final regulations. The proposed regulations provide that taxpayers are permitted to apply certain provisions of the proposed regulations (including all of the provisions that apply specifically to closed plans) for certain plan years beginning before the proposed applicability date.

Many comments have been submitted on the proposed regulations, including oral comments at a public hearing held on May 19, 2016. The Internal Revenue Service (IRS) and the Department of the Treasury (Treasury Department) expect that the final regulations will include a number of significant changes in response to those comments. However, it is anticipated that the final regulations will not be published in time for plan sponsors to make plan design decisions based on the final regulations before expiration of the relief provided under Notice 2014-5 (as last extended by Notice 2018-69). Accordingly, the IRS and the Treasury Department have determined that it is appropriate to extend the relief provided under Notice 2014-5 for an additional year.

The temporary nondiscrimination relief for closed plans that is provided in Notice 2014-5 is hereby extended to plan years beginning before 2021 if the conditions of Notice 2014-5 are satisfied. This extension is provided in anticipation of the issuance of final amendments to the § 401(a)(4) regulations. In addition, it is expected that the final regulations will provide that the reliance granted in the preamble to the proposed regulations may be applied for plan years beginning before 2021.

Notice 2014-5, Notice 2015-28, Notice 2016-57, Notice 2017-45, and Notice 2018-69 are modified.

The principal author of this notice is Diane S. Bloom of the Office of the Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). However, other personnel from the IRS participated in development of this guidance. For further information regarding this notice, please contact Ms. Bloom or Linda Marshall at (202) 317-6700 (not a toll-free number).

This notice provides the Applicable Amount for the fee imposed by Section 9010 of the Patient Protection and Affordable Care Act (PPACA) for the 2020 fee year.

Section 9010 of the PPACA, Public Law 111-148 (124 Stat. 119 (2010)), as amended by Section 10905 of PPACA, and as further amended by Section 1406 of the Health Care and Education Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 1029 (2010)), imposes an annual fee on covered entities engaged in the business of providing health insurance for United States health risks. The fee is a fixed amount (Applicable Amount) allocated among all covered entities in proportion to their relative market share as determined by each entity’s net premiums written for the data year, which is the year immediately preceding the year in which the fee is paid (the year in which the fee is paid is the fee year). Section 4003 of Division D—The Suspension of Certain Health-Related Taxes enacted on January 22, 2018, Public Law 115-120 (132 Stat. 38), suspended the fee for 2019. Absent legislative action, the fee will resume in 2020.

Section 9010(e)(1) provides the Applicable Amount for calendar years 2014 through 2018. The Applicable Amount for the 2018 fee year was $14,300,000,000. Section 9010(e)(2) provides that in the case of any calendar year beginning after 2018, the Applicable Amount shall be the Applicable Amount for the preceding calendar year increased by the rate of premium growth (within the meaning of § 36B(b)(3)(A)(ii) of the Internal Revenue Code).

Section 36B(b)(3)(A)(ii) generally provides that certain amounts are adjusted annually to reflect the excess of the rate of premium growth over the rate of income growth for the preceding calendar year. Sections 1.36B-2(c)(3)(v)(C) and 1.36B-3(g) of the Income Tax regulations provide that the amounts may be further adjusted to reflect updates to the data and data sources used to compute the ratio of premium growth to income growth. The amounts are computed using a premium adjustment percentage provided in guidance issued by the Department of Health and Human Services (HHS). For years prior to 2020, the rate of premium growth was based on per enrollee spending for employer-sponsored insurance as published in the National Health Expenditure Account (NHEA). However, in the 2020 Notice of Benefit and Payment Parameters, 84 FR 17454 (April 25, 2019), HHS provided a new premium growth measure beginning in calendar year 2020 that captures increases in individual market premiums in addition to increases in employer-sponsored insurance premiums for purposes of calculating the premium adjustment percentage for the 2020 benefit year and beyond. With this notice, the Department of the Treasury and the Internal Revenue Service adopt the new premium growth measure provided in the 2020 Notice of Benefit and Payment Parameters for purposes of determining the Applicable Amount for the fee imposed by Section 9010.

.01 Premium growth. The measure of premium growth for a calendar year is the premium adjustment percentage. For 2020, the premium adjustment percentage is calculated as the difference between the percentage (if any) by which the most recent National Health Expenditure Accounts (NHEA) projection of per enrollee premiums for private health insurance (excluding Medigap and property and casualty insurance) for the preceding calendar year, 2019 ($6,436), exceeds the most recent NHEA estimate of per enrollee premiums for private health insurance (excluding Medigap and property and casualty insurance) for 2017 ($5,929), the year preceding the last year that the Applicable Amount was provided by statute (2018, the base year), carried out to 10 significant digits. This method implicitly takes into account the premium growth from 2017-2018 as well as 2018-2019, thereby reflecting updates to the data and data sources that would have applied to compute the Applicable Amount for the 2019 fee year if the fee had not been suspended for that year. Using this formula, the premium adjustment percentage for 2020 is 1.0855118907.

.02 Applicable Amount. The 2020 Applicable Amount is determined by multiplying the fee for the 2018 base year (14,300,000,000) by the premium adjustment percentage for 2020 (1.0855118907), rounded to the nearest dollar.

The 2020 Applicable Amount is $15,522,820,037.

This notice applies to the 2020 fee year.

The principal author of this notice is Rachel S. Smith of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice, please contact Ms. Smith at (202) 317-6855 (not a toll-free number).

If an employer provides an employee with a vehicle that is available to the employee for personal use, the value of the personal use must generally be included in the employee’s income under section 61 of the Internal Revenue Code (the Code). In addition, benefits paid as remuneration for employment, including the personal use of employer-provided vehicles, generally are also wages for purposes of the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA) and the Collection of Income Tax at Source on Wages (federal income tax withholding). Sections 3121(a), 3306(b), and 3401(a).

The amount that must be included in the employee’s income and wages for the personal use of an employer-provided vehicle generally is determined by reference to the vehicle’s fair market value (FMV). However, the regulations under section 61 provide special valuation rules for employer-provided vehicles. If an employer chooses to use a special valuation rule, the special value is treated as the FMV of the benefit for income tax and employment tax purposes. §1.61-21(b)(4). Two such special valuation rules, the fleet-average valuation rule and the vehicle cents-per-mile valuation rule, are set forth in §1.61-21(d)(5)(v) and §1.61-21(e), respectively. These two special valuation rules are subject to limitations, including that they may be used only in connection with vehicles having values that do not exceed a maximum amount set forth in the regulations.

Under the current §1.61-21 regulations (the final regulations), the vehicle cents-per-mile valuation rule may be used only to value the personal use of a vehicle having a value no greater than $12,800 (the sum of the maximum recovery deductions allowable under section 280F(a)(2) for the recovery period of the vehicle). §1.61-21(e)(1)(iii). The fleet-average valuation rule may be used only to value the personal use of vehicles having values no greater than $16,500. §1.61-21(d)(5)(v)(D). (The fleet-average valuation rule uses the term “automobile” rather than “vehicle.” For convenience, this preamble uses the term “vehicle” except in specific discussions of the fleet-average valuation rule or the section 280F depreciation limitations.) Under the final regulations, each of these maximum values is adjusted annually pursuant to section 280F(d)(7).

These proposed regulations update the fleet-average and vehicle cents-per-mile valuation rules described in §1.61-21(d) and (e), respectively, to align the limitations on the maximum vehicle fair market values for use of these special valuation rules with the changes made by the Act to the depreciation limitations in section 280F. Specifically, consistent with the substantial increase in the dollar limitations on depreciation deductions under section 280F(a), these proposed regulations increase, effective for the 2018 calendar year, the maximum base fair market value of a vehicle for use of the fleet-average or vehicle cents-per-mile valuation rule to $50,000. As previously, the maximum fair market value of a vehicle for purposes of the fleet-average and vehicle cents-per-mile valuation rule is adjusted annually under section 280F(d)(7). This annual adjustment will be calculated in accordance with section 280F(d)(7) as amended by the Act. Consistent with Notice 2019-34, the Treasury Department and the IRS expect that the inflation-adjusted maximum fair market value for a vehicle for purposes of the fleet-average and vehicle cents-per-mile valuation rules will be included in the annual notice published by the IRS providing the standard mileage rates for the use of an automobile for business, charitable, medical, and moving expense purposes and the maximum standard automobile cost for purposes of an allowance under a FAVR plan.

Furthermore, consistent with Notice 2019-34, the following transition rules are included in these proposed regulations:

(1) With respect to the fleet-average valuation rule, if an employer did not qualify to use the fleet-average valuation rule prior to January 1, 2018 with respect to an automobile because the fair market value of the automobile exceeded the inflation-adjusted maximum value requirement of §1.61-21(d)(5)(v)(D), as published by the IRS in a notice or revenue procedure applicable to the year the automobile was first made available to any employee of the employer, the employer may adopt the fleet-average valuation rule for 2018 or 2019, provided the fair market value of the automobile does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019, respectively.

(2) With respect to the vehicle cents-per-mile valuation rule, for a vehicle first made available to any employee of the employer for personal use before calendar year 2018, if an employer did not qualify under §1.61-21(e)(5) to adopt the vehicle cents-per-mile valuation rule on the first day on which the vehicle was used by the employee for personal use because the fair market value of the vehicle exceeded the inflation-adjusted limitation of §1.61-21(e)(1)(iii), as published by the IRS in a notice or revenue procedure applicable to the year the vehicle was first used by the employee for personal use, the employer may first adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 taxable year with respect to the vehicle, provided the fair market value of the vehicle does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019, respectively. Similarly, if the commuting valuation rule of §1.61-21(f) was utilized when the vehicle was first used by an employee of the employer for personal use, and the employer did not qualify to switch to the vehicle cents-per-mile valuation rule on the first day on which the commuting valuation rule was not used because the vehicle had a fair market value in excess of the inflation-adjusted limitation of §1.61-21(e)(1)(iii), as published by the IRS in a notice or revenue procedure applicable to the year the commuting valuation rule was first not used, the employer may adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 taxable year, provided the fair market value of the vehicle does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019, respectively. However, consistent with §1.61-21(e)(5), an employer that adopts the vehicle cents-per-mile valuation rule must continue to use the rule for all subsequent years in which the vehicle qualifies for use of the rule, except that the employer may, for any year during which use of the vehicle qualifies for the commuting valuation rule of §1.61-21(f), use the commuting valuation rule with respect to the vehicle.

Until amendments to the final regulations are published under Treas. Reg. §1.61-21(d) and (e) in the Federal Register, taxpayers may rely on the guidance provided in these proposed regulations.

These proposed regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Department of the Treasury and the Office of Management and Budget regarding review of tax regulations.

It is hereby certified that these proposed regulations will not have a significant economic impact on a substantial number of small entities pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6). This certification is based on the fact that the proposed regulations would update existing regulations to comport with the statutory changes to section 280F made by the Act. Although the proposed regulations might affect a substantial number of small entities, the economic impact of the proposed regulations is not expected to be significant.

Since the current vehicle valuation rules in the regulations are tied to inflation adjustments under section 280F, the statutory changes to section 280F necessitate modifications to the procedures for calculating annual inflation adjustments to the maximum fair market value of a vehicle permitted for use with the fleet-average and vehicle cents-per-mile special valuation rules. These proposed revised special valuation rules are consistent with the base values and methodology used for section 280F purposes and simplify the determination of the amount employers must include in employees’ income and wages for income and employment tax purposes for the personal use of employer-provided vehicles. The modifications that would be made by these proposed regulations to the maximum fair market value of a vehicle permitted for use with the fleet-average and vehicle cents-per-mile special valuation rules, and the transition rules provided in connection with these proposed regulations, increase the number of employers and employees that may take advantage of the special valuation rules, without increasing costs to the employer.

Notwithstanding this certification that the proposed regulations would not have a significant economic impact on a substantial number of small entities, the Treasury Department and the IRS invite comments on the impacts these proposed regulations may have on small entities. Pursuant to section 7805(f), these proposed regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The Treasury Department and the IRS request comments on all aspects of the proposed rules.

Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES heading.

All comments are available at https://www.regulations.gov or upon request. If a public hearing is scheduled, notice of the date, time, and place of the public hearing will be published in the Federal Register.

The principal author of these regulations is Gabriel Minc of the Office of the Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Tax). However, other personnel from the IRS and the Treasury Department participated in their development.

The IRS Notices and Revenue Procedures cited in this preamble are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at http://www.irs.gov.

Income taxes, Reporting and recordkeeping requirements.

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805***

Par. 2. Section 1.61-21 is amended by revising paragraph (d)(5)(v)(D), adding paragraphs (d)(5)(v)(G) and (H), revising paragraph (e)(1)(iii)(A), revising paragraph (e)(5)(i), and adding paragraphs (e)(5)(vi) and (e)(6), to read as follows:

§1.61-21 Taxation of fringe benefits.

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(d) ***

(5) ***

(v) ***

(D) Limitations on use of fleet-average rule. The rule provided in this paragraph (d)(5)(v) may not be used for any automobile the fair market value of which (determined pursuant to paragraphs (d)(5)(i) through (iv) of this section as of the first date on which the automobile is made available to any employee of the employer for personal use) exceeds $50,000, as adjusted by section 280F(d)(7). The first such adjustment shall be for calendar year 2019. In addition, the rule provided in this paragraph (d)(5)(v) may only be used for automobiles that the employer reasonably expects will regularly be used in the employer’s trade or business. For rules concerning when an automobile is regularly used in the employer’s business, see paragraph (e)(1)(iv) of this section.

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(G) Transition rule for 2018 and 2019. Notwithstanding paragraph (d)(5)(v)(B) of this section, an employer that did not qualify to use the fleet-average valuation rule prior to January 1, 2018 with respect to any automobile (including a truck or van) because the fair market value of the vehicle exceeded the inflation-adjusted maximum value requirement of paragraph (d)(5)(v)(D) of this section, as published by the Service in a notice or revenue procedure applicable to the year the vehicle was first made available to any employee of the employer, may adopt the fleet-average valuation rule for 2018 or 2019 with respect to the vehicle, provided the fair market value of the vehicle does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019, respectively.

(H) Applicability date. Paragraphs (d)(5)(v)(D), and (G) of this section apply to taxable years beginning on or after [INSERT DATE OF PUBLICATION OF THE FINAL RULE IN THE FEDERAL REGISTER]. Notwithstanding the first sentence of this paragraph (d)(5)(v)(H), any taxpayer may choose to apply paragraph (d)(5)(v)(G) of this section beginning on or after January 1, 2018.

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(e) ***

(1) ***

(iii) ***

(A) In general. The value of the use of an automobile (as defined in paragraph (d)(1)(ii) of this section) may not be determined under the vehicle cents-per-mile valuation rule of this paragraph (e) for a calendar year if the fair market value of the automobile (determined pursuant to paragraphs (d)(5)(i) through (iv) of this section as of the first date on which the automobile is made available to any employee of the employer for personal use) exceeds $50,000, as adjusted by section 280F(d)(7). The first such adjustment shall be for calendar year 2019.

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(5) ***

(i) Use of the vehicle cents-per-mile valuation rule by an employer. An employer must adopt the vehicle cents-per-mile valuation rule of this paragraph (e) for a vehicle to take effect by the first day on which the vehicle is used by an employee of the employer for personal use (or, if the commuting valuation rule of paragraph (f) of this section is used when the vehicle is first used by an employee of the employer for personal use, the first day on which the commuting valuation rule is not used).

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(vi) Transition rule for 2018 and 2019. For a vehicle first made available to any employee of the employer for personal use before calendar year 2018, if an employer did not qualify under this paragraph (e)(5) to adopt the vehicle cents-per-mile valuation rule on the first day on which the vehicle is used by the employee for personal use because the fair market value of the vehicle exceeded the inflation-adjusted limitation of paragraph (e)(1)(iii), as published by the Service in a notice or revenue procedure applicable to the year the vehicle was first used by the employee for personal use, may first adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 taxable year, provided the fair market value of the vehicle does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019, respectively. Similarly, for a vehicle first made available to any employee of the employer for personal use before calendar year 2018, if the commuting valuation rule of paragraph (f) of this section was used when the vehicle was first used by the employee for personal use, and the employer did not qualify to switch to the vehicle cents-per-mile valuation rule of this paragraph (e) on the first day on which the commuting valuation rule of paragraph (f) of this section was not used because the vehicle had a fair market value in excess of the inflation-adjusted limitation of paragraph (e)(1)(iii) of this section, as published by the Service in a notice or revenue procedure applicable to the year the commuting valuation rule was first not used, the employer may adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 taxable year, provided the fair market value of the vehicle does not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019, respectively. However, in accordance with paragraph (e)(5)(ii) of this section, an employer that adopts the vehicle cents-per-mile valuation rule pursuant to this paragraph (e)(5)(vi) must continue to use the rule for all subsequent years in which the vehicle qualifies for use of the rule, except that the employer may, for any year during which use of the vehicle qualifies for the commuting valuation rule of paragraph (f) of this section, use the commuting valuation rule with regard to the vehicle.

(6) Applicability date. Paragraphs (e)(1)(iii)(A) and (e)(5)(i) and (vi) of this section apply to taxable years beginning on or after [INSERT DATE OF PUBLICATION OF THE FINAL RULE IN THE FEDERAL REGISTER]. Notwithstanding the first sentence of this paragraph (e)(6), any taxpayer may choose to apply paragraph (e)(5)(vi) of this section beginning on or after January 1, 2018.

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Kirsten Wielobob

Deputy Commissioner for Services and Enforcement.

(Filed by the Office of the Federal Register on August 22, 2019, 8:45 a.m., and published in the issue of the Federal Register for August 23, 2019, 84 F.R. 44258)